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Tax Pulse by DMA Canada - Legal Corner PT

by DMA Staff | Jun 23, 2016

Case Law

Appellate Decision Confirms Municipal Power to Amend Tax Rates Over the Course of a Fiscal Year

In recent developments in Quebec municipal tax law, a recent decision by the Quebec Court of Appeal clarifies the municipal power to diversify tax rates over the course of a fiscal year, while reaffirming the broad and benevolent interpretation of municipal powers and the large latitude granted to municipalities for the management of their territory. 

In Québec (Ville de) v. Galeries de la Capitale Holding inc., 2016 QCCA 951, the Quebec Court of Appeal, in a decision involving one of Quebec City’s foremost shopping centers, unanimously reversed a Superior Court decision dealing with the issue of double taxation and the power of municipalities to manage their affairs.

In its 2014 decision, the Superior Court deemed that Quebec City, in the exercise of its discretion under Division IV.5 of An Act Respecting Municipal Taxation, hereinafter, the Act, titled Transitional Diversification of the Rates of Certain Real Estate Taxes, had been ultra vires in taxing the Plaintiff twice over the course of a single fiscal year.

In 2013, upon the entry into force of its three-year assessment roll for 2013 through 2015, Quebec City’s finance division analyzed the impact of this new roll comparatively to the last one in order to identify the standard deviation of the increase in the assessed value of the property, by which the City can determine if it will, by resolution, average the variation in taxable values. In 2013, this analysis was initially only performed for residential properties, and historically non-residential properties mirrored the deviations in residential properties.

In January of 2013, when taxpayers received their accounts, Quebec City noticed an abnormal amount of complaints and the City’s Assistant-Treasurer confirmed that several property tax accounts had doubled. The standard deviation analysis which had been performed only for residential properties was then performed for non-residential properties in an effort to identify the root cause of the issue, which the Assistant-Treasurer qualified as dramatic for small businesses. As a commercial real estate lessor, many of the Plaintiff’s lessees are small businesses who saw their rents rise dramatically with the entry into force of the latest roll, as their lease includes a redistribution of property tax.

The Act provides for three tools that a municipality has at its disposal during the entry into force of a new assessment roll, namely to averaging of the value; to abate or surcharge; or, to diversify the rate. In order to counter the negative effects on small businesses, Quebec City elected to diversify the rate of certain property taxes, thus modifying the rate by which the assessed value is multiplied to arrive at the amount inscribed on the tax account. As a result of this new rate, the Plaintiff received a second property tax invoice.

The Superior Court’s rejection of this second property tax invoice was founded on an analysis of section 485 of the Cities and Towns Act which enables a municipality to levy property taxes annually, with a particular focus on the annual specificity of this provision. The Superior Court considered that the second invoice constituted a second property tax in a same fiscal year, which Quebec City would have been ultra vires in emitting and requiring payment of, as the City would only have been enabled to levy property tax once a year. Under this interpretation, any amendment to the taxation rate would then have to be made prior to the beginning of the fiscal year during which the taxes are levied.

This contentious analysis by the Superior Court is at the heart of the appellate court’s reversal, which begins with a reminder that the statutes attributing discretionary power, either by reasonable implication or expressly conferred, to municipalities must be interpreted in a benevolent manner; and that municipalities must enjoy the necessary latitude to manage their territory according to the interests of its residents, and according to a reasonable understanding of their public interest. The Court further adds that Quebec City was actually under legal obligation to mitigate the impact of the variation under section 21 of An Act to amend the Act respecting municipal taxation.

The Court of Appeal estimates that the Superior Court added a criterion that was statutorily provided for in reading into section 253.54 of the Act, which governs the diversification of the rate, a time limit as to when the mitigation measures can be adopted, being prior to the beginning of the fiscal year during which it would apply. According to the appellate court, the provision does not include any such time constraints, and as such the intent was to attribute municipalities the latitude to diversify the rate at any time over the course of the fiscal year. According to this decision, it is not necessary to implement the mitigation measure of diversification before the beginning of the fiscal period during which it would apply. As such, the Court of Appeal considers that the second account is not a second distinct property tax account, inasmuch as it is a modification or amendment of the first one, which together constitute a same and single tax account to be annually levied.

This example drawn from recent case law highlights the importance of flexibility for municipalities to act in the public interest and find a balance for its taxpayers through the many statutory measures that they have the discretion to apply, namely for correcting imbalances caused by new assessment rolls.

This document has been provided by Miller Thomson SENCRL.

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